Bullion prices traded within a rather confined range overnight (from $915 to $930) , while the US dollar appeared stalled at just above 84 on the index, and oil prices gave up a little more than one dollar on rising inventories while they sank to the mid-$52 area. Stock markets also gave back some of the ground they had won earlier in the week. The biggest overnight news concerned...you guessed it, the continuing ills plaguing the global economy. Japan's exports experienced their largest decline on record in February - a slump of nearly 50% (led by a virtual evaporation of automobile shipments to the US and Europe). Romania got a 20 billion euro rescue package from the IMF, and German business sentiment dropped to record a fresh, 26-year nadir.
New York spot bullion prices started the midweek session on a continuing weak tone, losing $6 at $920 per ounce. Participants were awaiting a Tim Geithner speech in NY, durable good orders, and watching a live interview with Prime Minister Gordon Brown on Marketwatch. The PM said that nothing short of 'new thinking' was required in order to deal with the global financial crisis. Mr. Brown said that 'every central bank' was looking at, and applying 'non-standard' ways to stimulate an economic recovery on their own, as well as the global turf. Some $2.5 trillion has already been thrown at the global economic Andromeda Strain. Thus far, only glimmers of positive results have been recorded. Mr. Brown mentioned the Chinese and Russian proposals to come up with a new global reserve currency by stating that perhaps half of the global $7 trillion in reserves could be used to reignite various economies, but that -at the end of the day- he is still 'long the dollar' (as concluded on questioner). No need to switch to something 'other' unless some kind of bulletproof 'insurance' could be found with which to replace/supplement/reinforce/etc. the US dollar. In other words, too much is already invested to allow for radical and/or immediate shifts in the makeup of the current reserve system.
One would hope that such a new direction will include not making some of the mistakes that were made when he occupied the office of the Exchequer. At any rate, Mr. Brown sees the current crisis as the very point in time when America will lead the world into a new era - one that recognizes that the problems are indeed global in scope, and one that will avoid 'old-think' and protectionism. He also acknowledged that gaps in regulation over the past decade or more, have at least partially been responsible for the current problems. Republican screaming continued in front of various TV cameras in the US, replete with characterizations of the Obama recession (sure, after two months in office?!) and promises of 'we can do this a lot better' (as if).
Silver lost about 20 cents to start at $13.25 per ounce, while platinum gained $2 to open at $1119 an ounce. Palladium lost $1 and was quoted at $205
per ounce. Recall that next Tuesday is deadline day for the Formerly Big Three to outline a roadmap to their benefactors - you, the taxpayers. Whether
that day brings the tipping point for GM and perhaps Chrysler to go into Ch. 11 and/or begin a radically different incarnation, remains to be seen. It also
happens to be first notice day for active contract deliveries.
After having reached record levels above $1,000 in March 2008, gold prices appear likely to retest these levels in 2009. Rising economic uncertainties related to recessionary conditions and rising joblessness, increasingly volatile and vulnerable financial markets, and weakening economic conditions helped continue to spur strong investment demand for gold this past year. This trend is expected to continue in 2009, albeit with anticipated variability in the levels of intensity of both economic concerns and the consequent investor interest in gold. Investors are concerned about the preservation of the value of their assets amid the massive destruction of wealth over the past year. Not since the Great Depression and World War Two has sentiment about the state of financial and economic conditions been so pessimistic. Gold, which has played a monetary role for centuries, appears to be enjoying a rehabilitation of its historical might and role as a financial asset, as investors look toward safe haven assets in these volatile times.
Framed by a heavy turnout from the media, various fund managers, and other institutional representatives, the CPM Group's head, Jeff Christian, outlined the broad picture in the background economics of the moment, as well as presented his firm's findings on the most recent developments in the bullion market. We would urge every one of you reading this post to ensure that you obtain your own copy of the publication if you are even remotely lukewarm to the idea of gold ownership (and, we suspect that by having clicked on this article, you are much more than just 'lukewarm...'). Click on the CPM banner on Kitco's homepage and the rest is quite easy. Mr. Christian went on to provide further details on the state of the gold market as we get further into 2009:
Gold, which is now in the ninth year of a major period of historically high investment demand for gold and consequently rising prices, is undergoing a secular upward move in both investor interest and prices. Over the past 40 years gold has been deprecated and under-utilized as a financial asset. Gold’s role as a portion of the world’s financial wealth has fallen sharply since the link between gold and money creation was severed in the years 1968 and 1971. The Gold Yearbook 2009 puts forth the thesis that the rise in investor gold buying and prices since 2001 reflects a restoration of gold as a significant component of financial assets worldwide.
The 2009 Gold Yearbook delves further into the supply and demand fundamentals for the gold market than in previous years. The Supply chapter reviews mine production, secondary recovery of gold, and transitional economy sales. It is estimated that total gold supply rose to 114.8 million ounces last year, up 3.4% from 111.1 million ounces in 2007. Mine production continued to decline last year, to 55.3 million ounces from 58.7 million ounces in 2007. Secondary supply meanwhile surged to 38.5 million ounces in 2008 from 32.4 million ounces in 2007. This year total supply could rise further, to 118.6 million ounces. Mine production may rise to 57.2 million ounces, secondary supply to 40.5 million ounces, and transitional economy sales may hold steady at 21 million ounces.
Last year saw official sales, mostly from central banks, decline to 5.8 million ounces from 15.9 million ounces in 2007. This reduced the total available supply to the gold market to 120.7 million ounces from 127.0 million ounces in 2007. This year official transaction sales may be no more than 5.0 million ounces and total available supply may be 123.6 million ounces. Most central banks may have sold much of the gold that they have wanted to sell over the past two decades. They may sell much less going forward and are likely to sell less given current economic conditions. The Gold Yearbook discusses official transaction trends and also speaks to the recent proposal to sell gold by the International Monetary Fund.
Investors continued to buy large quantities of gold last year, totaling 43.3 million ounces. This was slightly lower than the 44.0 million ounces bought in 2007. Amid the continued inclination to acquire safe haven assets around the world, investor buying is projected to reach a record 52.3 million ounces this year. Continued volatile and weak financial and economic conditions are expected to be supportive of strong investment demand this year as well. Combined with short term and speculative activity, gold prices are expected to surpass last year’s record intraday high of $1,033.90, seen on 17 March 2008.
Fabrication demand for gold has declined overall since 2001, partly reflecting the rise in prices. Last year fabrication demand, which consists mostly of jewelry as well as electronics, dental, medical, and other uses, declined to 77.4 million ounces from 82.9 million ounces in 2007. This year total demand is projected to fall further, to 71.3 million ounces. Consumer spending on discretionary items, such as gold jewelry, is expected to remain weak this year. Jewelry demand could fall to 56.5 million ounces in 2009 from 60.8 million ounces last year. Industrial demand meanwhile could decline to 14.8 million ounces from 16.6 million ounces. These are just some of the findings in CPM Group’s Gold Yearbook 2009.
CPM Group produces annual Yearbooks on gold, silver, and platinum group metals, in a series of reports that began in 1971. Since 2006 these reports have been published by John Wiley & Sons, and have been marketed through Wiley’s network of book sellers as well as by CPM Group. This year’s reviews have been priced at $75.00 plus shipping and handling to make them readily available to individual investors as well as institutions, corporations, and governments.
The 2009 Gold Yearbook is sponsored by Barrick Gold Corporation, CME Group, Goldcorp Inc., Great Basin Gold Limited, Kitco Inc., Multi Commodity Exchange of India, Noah Financial Innovation, Commodities Now, and The Institute of Scrap Recycling Industries, Inc.
CPM Group began in the early 1970s as the research department of J. Aron and Company, one of the world’s largest and most successful commodities trading companies. In 1986 CPM Group spun off from Goldman Sachs, which had acquired J. Aron in 1981, to set up as an independent company that provides a range of consulting and research services to companies, investors, governments, and others with large financial exposure to commodities. The company has produced annual reports on gold and silver since 1971, and annual surveys of the platinum group metals markets since 1981. It is considered one of the foremost authorities on precious metals in the world. The annual reports are used by major producers, users, investors, central banks, governments, and others as the basis for their views on precious metals supply, demand, and overall market mechanics.
CPM Group’s Gold Yearbook 2009. Available in printed and/or PDF format. US$75.00. Available from CPM Group. 30 Broad St., 37th Floor. New York, NY 10004 Tel. 212-785-8320. Fax: 212-785-8325. email: firstname.lastname@example.org. The report may be ordered and downloaded online at www.cpmgroup.com.
We will be back with selected topics from the CPM report over the span of several upcoming commentaries. Our take is that continued investor interest amid global uncertain conditions, coupled with a practical cessation (and possible reversal) in central bank disposals have (at least) placed a floor price under gold (somewhere between $650 and $750) and will likely be factors that could support a period of sustained values, at levels about two to three hundred dollars higher than they would otherwise be. Surprises cannot be ruled out, price-busting scenarios could come into the picture just as easily as would price-boosting ones (albeit of also of short duration). Much depends on the very things that Messrs.. Brown, Obama, Trichet, Putin, etc. are battling with at the moment.